Aurelia Butler

TORONTO (Reuters) – After the Bank of Canada posted its first ever quarterly loss, the federal government plans to introduce legislation enabling the central bank to retain profits rather than remit them to the government, BoC Governor Tiff Macklem said.The new legislation would give the Canadian central bank the means to restore positive equity on its balance sheet.The BoC’s balance sheet is likely to slip into negative equity in the coming years, a position in which liabilities exceed assets, as it pays out a higher interest rate on settlement balances than it earns on the government bonds it bought to support the economy during the COVID-19 crisis.Settlement balances, which stood at about C$200 billion ($149 billion) in December, are deposits at the central bank held by financial institutions. The rate on those deposits has climbed in lockstep with the BoC’s benchmark interest rate, which is up 425 basis points since March.Several other major central banks that expanded their balance sheets, such as the Federal Reserve, also face negative equity issues. “The Minister of Finance has recently communicated to me that the government intends to introduce legislative amendments that will allow the bank to retain earnings to offset losses,” Macklem said in a news conference on Wednesday following the central bank’s decision to raise interest rates by a quarter of a percentage point, adding that the losses have no impact on monetary policy.”Once positive equity is restored, we would resume our normal remittances to the Government of Canada,” Macklem said.Unlike a commercial bank, a central bank issues currency as well as settlement balances, so there is no indication that a move into negative equity would be a threat to the BoC’s solvency.The central bank reported a net loss of C$511 million in the third quarter of 2022, while its equity stood at C$954 million. The C.D. Howe Institute, a Canadian think tank, estimates cumulative losses of between C$3.6 billion and C$8.8 billion over the next two to three years.Canada’s central bank typically earns more income on its assets than it pays on its liabilities and then remits its net income to the government. In 2021, its remittance was C$2.7 billion.Before the pandemic, the Bank of Canada’s liabilities consisted largely of banknotes in circulation, on which it pays no interest, but settlement balances have since surged to finance the balance sheet expansion.Last April, the central bank began the process of shrinking the size of its balance sheet, a move known as quantitative tightening.($1 = 1.3387 Canadian dollars) More

Mobile phone operators once successfully instilled the fear of missing out into their customers, encouraging the replacement of smartphones for the latest models every two years. Network phone subsidies helped keep shipments and earnings at global phonemakers strong. Industry data for past year suggests that is ending.Global smartphone shipments dropped 18.3 per cent — the most on record — to about 300mn units in the December quarter, according to research group IDC. For the year shipments fell 11.3 per cent, the lowest total for a decade.Blame temporary disruptions resulting from year-end violent protests over Covid-19 restrictions at Apple’s main iPhone factory in China. Price inflation and slowing global economic growth too affected holiday shopping. Buyers increasingly seek cheaper, older models. But there is good reason to believe that the poor shipment figures are part of a longer lasting trend. Seven years ago, two-thirds of US consumers replaced their smartphones in two years or less. That gap has widened to about three years owing to more durable materials and increased software updates. Pricier Apple and Samsung flagship models have created a robust market for second-hand phones. Longer ownership offers green perks. Consider that 80 per cent of a smartphone’s carbon footprint is created during manufacture. About 5bn mobile phones are thrown away each year. Not all parts can be recycled and some can release toxic chemicals.All this is bad news for the companies. The iPhone is Apple’s most important product, accounting for about half of overall revenue. Samsung Electronics earned more than 40 per cent from its mobile business in the third quarter 2022. Shares of both companies are down a tenth in the past year, reflecting waning demand. There will be knock-on effects on a larger range of sectors. The duo are the main clients for component makers (flash memory through displays) in Japan, Vietnam, China and South Korea. Less consumer Fomo means more oh-no for the entire smartphone industry. More

(Reuters) – The U.S. Treasury Department next week is likely to announce that it will offer fewer Treasury bills in the second quarter, after hitting its statutory borrowing limit.Any new indications over whether the Treasury could employ Treasury buybacks, or make changes to its auction schedule for some notes, will also be a focus of interest as market participants grapple with the best ways to improve liquidity in the $24 trillion Treasuries market.U.S. Treasury Secretary Janet Yellen activated a second extraordinary cash management measure on Tuesday, after previously warning that the Treasury could run out of funds in early June if the U.S. Congress does not approve an increase in the $31.4 trillion debt ceiling.Analysts expect the U.S. government could finance itself through July or even October, but there is much uncertainty and how long it can last may depend on proceeds from this year’s tax season.Next week, the Treasury is likely to say that it will reduce its issuance of Treasury bills, debt that matures in one year or less, and run down its cash balance to buy more time.“Bill issuance is going to come down quite a bit in Q2. … They have to incorporate the debt ceiling into their financing estimates at this point,” said Angelo Manolatos, a macro strategist at Wells Fargo (NYSE:WFC).The Treasury will give its financing estimate for the coming quarter on Monday and offer more details on its funding strategy on Wednesday.It may also indicate that it will do more than reverse cuts in bill issuance when an agreement to increase the debt ceiling is reached, and a flood of the debt is expected to hit the market.That is because the U.S. government wants to increase bills as a percentage of overall debt to meet its long-term goals.“It’s trying to build up bill supply, which got too low last year when Treasury was facing smaller deficits on the back of the pandemic spending,” said Meghan Swiber, U.S. rates strategist at Bank of America (NYSE:BAC).IMPROVING LIQUIDITYAnalysts and market participants will also be watching to see whether the Treasury indicates that it will adopt proposals meant to improve liquidity, which it has queried dealers about over the last few quarters.In the last survey, Treasury asked if it should change auctions schedules for two-, three-, five- and seven-year notes to include reopenings, as is common with longer-dated debt.This could increase liquidity and concentrate more trading in larger “on-the-run” issues, but that would come at the expense of “off-the-run” debt, said Benjamin Jeffery, an interest rate strategist at BMO Capital Markets.So-called “on-the-runs” are the most recent and liquid issues, while older “off-the-run” bonds have suffered the most liquidity problems when market conditions worsen.Having larger two-year note issues could reduce the number of times the notes trade “special” in the repurchase agreement market, said Manolatos, which occurs when there is a shortage of notes to borrow.On the other hand, it could also require more active risk management by investors because three months between issues, assuming two reopenings, is a large duration change for a relatively short maturity.“Two months later a two-year doesn’t have the same duration,” Manolatos said.BofA’s Swiber said that Treasury buybacks, which the Treasury queried dealers about in a previous survey, are a better solution to boost liquidity during times of market stress.These “allow Treasury to more directly manage Treasury liquidity, to more directly manage the outstanding supply of securities and they can effectively buy back things that are cheap on the curve and help support liquidity in the more liquid parts of the curve as well,” she said.An improving liquidity outlook with less uncertainty over Federal Reserve policy relative to last year and more balanced supply and demand dynamics makes this issue less urgent, however, so while the Treasury may include a discussion on possible buybacks, it is unlikely to make a formal announcement next week, Swiber said. More

PRETORIA (Reuters) -U.S. Treasury Secretary Janet Yellen on Thursday lauded South Africa’s “bold” participation in an energy transition partnership backed by the United States and other Western nations, but steered clear of mentioning U.S. concerns about Pretoria’s planned military drills with China and Russia.Yellen spoke to reporters alongside South African Finance Minister Enoch Godongwana in Pretoria on the third leg of her nearly two-week tour of Africa, and just days after Russian Foreign Minister Sergei Lavrov visited South Africa.In prepared remarks, Yellen welcomed Godongwana’s “cooperation and insightful views” in their talks so far, and said she planned to raise several issues, including Zambia’s stalled sovereign debt restructuring effort, given South Africa’s key role on the country’s creditor committee.”The United States strongly values our relationship with South Africa,” Yellen said in remarks that included no mention of Russia or China, or White House concerns about Pretoria’s plans to hold joint military drills with both countries.Godongwana said the two would discuss countering the financing of terrorism, climate financing, resolving sovereign debt crises in Africa and global topics that will form part of a meeting of the G20 group of major economies next month.He said Yellen’s visit was a “momentous” occasion, noting the previous visit by a U.S. Treasury secretary was in 2014, and praised Yellen’s announcement on Wednesday that the United States and South Africa were setting up a joint task force on combating financing of wildlife trafficking.The U.S. Treasury issued no statement about Yellen’s closed-door meeting on Wednesday with South African President Cyril Ramaphosa, a meeting described by Pretoria as a “courtesy call.”South Africa has remained one of Moscow’s most important allies on a continent divided over Russia’s invasion of Ukraine on Feb. 24 last year. Yellen’s trip has kicked off a yearlong charm offensive of U.S. top leader visits to Africa aimed at deepening U.S. economic ties with the continent and countering China’s long dominance of trade and lending with many African nations.Throughout her visit, Yellen has emphasized the right of countries to choose their trading partners, while pitching the greater transparency and lasting nature of engagement with the United States.The Treasury secretary, who meets with South Africa’s central bank governor later on Thursday, singled out South Africa’s “Just Energy Transition Partnership,” which was backed in late 2021 by the United States, Britain, France, Germany and the European Union. They pledged a combined $8.5 billion to accelerate South Africa’s transition away from fossil fuels to renewable energy, but the total bill will be much higher.”This partnership represents South Africa’s bold first step toward expanding electricity access and reliability and creating a low carbon and climate resilient economy,” Yellen said, adding that it would “alleviate the deep fiscal strain the energy sector is putting on South Africa’s economy.” More

Foxtons said it achieved double-digit revenue growth and better than expected profits for last year, but warned that the start of 2023 would be tougher as economic conditions toughen for many in the UK. The estate agent said on Thursday that its lettings business had grown strongly in 2022, but admitted that sales would be “subdued” as higher interest rates and inflationary pressure weigh on demand.“The economic outlook for the year ahead remains uncertain, but we have a growing portfolio of non-cyclical revenues” said chief executive Guy Gittins said.Estate agents have warned that a challenging economic backdrop in the UK will continue to affect sales into 2023, as the market approaches the hottest time of year for house buying and selling. Savills recently cautioned that high interest rates and inflationary pressure would remain “in focus for some time.”Foxtons said it expects to report an 11 per cent rise in revenue to around £140mn for 2022, ahead of market expectations. The group also said that its adjusted operating profit would beat analysts’ estimates. The estate agent had raised its expectations in October for the full year as a squeeze in supply led to surging rents in London. The group, which has more than 26,000 tenancies in its portfolio, said its lettings and financial services business now generates around two-thirds of its overall revenue.However, shares in Foxtons were down nearly 2 per cent in early trading. Chris Millington, analyst at Numis Securities, said “it’s probably fair to say it’s going to be a very tough first half for them.” “I have seen activity levels pick up a little at the start of this year relative to Q4, admittedly off a very low base, but the difficulty is knowing how that’s going to convert and how long it’s going to take to convert,” he added. “Everything takes a bit longer in times of uncertainty.” More